Stocks Rise Toward Near-Record Highs as Optimism Over U.S.–Iran Peace Deal Grows

The U.S. stock market has rebounded from a series of shocks in recent years. While fighting continues in Lebanon, the Strait of Hormuz remains effectively closed, and negotiators left this weekend’s peace talks empty-handed, Wall Street’s reaction has been more optimistic.

On Tuesday, the S&P 500 rose 1.2%, supported by optimism for a lasting U.S.-Iran agreement that would end the war and reopen the Strait of Hormuz. The closure of the strait had contributed to energy prices surging. The move lifted the benchmark index to a two-month high, leaving it just 11 points, or 0.2%, below its all-time closing high.

“There is a clear ‘mission accomplished’ tone being priced into markets as the ceasefire appears to be holding and talks set to move forward,” said Jake Behan, head of capital markets at ETF provider Direxion, on Tuesday.

Why the market move matters

Investors appear to be treating the latest developments as another test of the market’s resilience. The article notes that, like the U.S. economy, the stock market has shown an ability to absorb multiple shocks in recent years, even as it has already been priced for trade uncertainty, stubborn inflation, and elevated interest rates.

Optimism was reinforced by reports that the U.S. and Iran will resume negotiations this week. It was also supported by a wholesale inflation report that came in softer than expected, easing concerns about how a spike in oil prices could affect inflation in the months ahead.

In addition, investors were confident about corporate earnings momentum. The article states that analysts are forecasting double-digit profit growth for the S&P 500.

Behan said there has been “little evidence of meaningful demand destruction tied to the conflict,” suggesting the underlying growth backdrop remains intact heading into any resolution.

Data points cited: consumer spending and market sensitivity

Consumer spending remained steady last month, according to a Bank of America analysis of its clients’ debit and credit card spending. Aside from gas, the categories with the largest monthly increases were electronics, home improvement, and department stores—areas associated with discretionary spending.

Bank of America attributed the resilience in part to the stock market’s relatively calm response to the Iran war. Even during the sell-off last month, the S&P 500 avoided a correction, defined in the article as a 10% decline from its January highs.

The article adds that higher-income cohorts—an increasingly large share of consumer spending—appeared comfortable continuing to spend. Bank of America said a 20% decline in the stock market would likely be required for higher-income households to rein in their spending.

What remains uncertain

Experts cautioned that the U.S.-Iran ceasefire is still fragile. The article notes that the two sides are far apart on key issues, including Iran’s right to enrich uranium and a framework for overseeing the Strait of Hormuz. It also points out that traffic through the strait remains a fraction of pre-war levels, and that global oil supply is, at best, months away from returning to anything resembling normal.